Editorial Board
Banks’ New Trick Won’t Make Their Risks Disappear
Buying insurance is no substitute for loss-absorbing equity.
And it’s gone.
Photographer: Sean Gallup/Getty ImagesOne big reason the global financial system nearly collapsed in 2008 was that banks had shifted risks into the shadows, relying on insurance-like instruments that proved incapable of absorbing losses.
They’re at it again. It’s a trend that officials should discourage, not endorse.